This TA aims to support regulatory reforms in line with international good practices, covering the financial sector (banking, insurance, and securities) of DMCs in East and Southeast Asia. 6 The TA will examine the relevance of the global reform issues and their implications for emerging Asian economies, strengthen macro-prudential supervision of the DMCs through knowledge sharing, and help improve national regulatory systems and promote harmonization of national regulations and practices in line with global standards.
The TA will address the issues of regulatory reforms from a new post-crisis perspective. It will (i) examine how Asian economies translate the lessons of the recent global financial crisis into appropriate policies and reform measures in terms of macro-prudential supervision relative to micro-prudential supervision; (ii) assess the robustness of financial sector policies or reforms to buffer any systemic vulnerability to financial crises, and the extent of their contribution to financial soundness and stability; and (iii) help develop the strategic direction of the financial policies and regulatory reforms through consultations with officials from DMC finance ministries, central banks, and supervisory agencies.
|Project Rationale and Linkage to Country/Regional Strategy
The global financial crisis that emerged from the meltdown of the mortgage market in the United States in 2007 and spread to the world in 2008 2009 highlighted deficiencies and weaknesses in the current international financial architecture as well as national financial regulatory systems. In response to these, the Group of Twenty (G-20) leaders made commitments to build a more resilient financial system. Subsequently, G-20 finance ministers and central bank governors, in consultation with the International Monetary Fund, tasked the Basel Committee on Banking Supervision and the Financial Stability Board (FSB) to recommend ways to strengthen oversight and supervision of the financial sector, with the aim of building a resilient international financial system that can withstand shocks and mitigate their adverse effects on the real economy.
Much progress has been made since the first commitments made by the G-20 leaders at the Washington summit in November 2008. In accordance with the G-20's guiding principles, the FSB and its constituents sculpted specific reform proposals to strengthen financial stability. The first concrete outcome was the Basel III package of capital and liquidity reforms, which was endorsed by the G-20 leaders at the November 2010 Seoul summit. The new rules are planned to be implemented from January 2013 and are expected to be fully phased in by 1 January 2019. In February 2011, the FSB reported progress in the implementation of the G-20 recommendations on financial regulation. The report outlined further work toward dealing with systemically important financial institutions, strengthening the regulation and oversight of the "shadow banking" system, improving over-the-counter derivatives market and credit rating agencies, developing macro-prudential frameworks, and making progress in international harmonization of high-quality accounting standards.
These reforms have focused on strengthening global regulatory guidelines such as the Basel III standards, filling the regulatory gaps, and broadening the coverage. However, there is not yet an effective and collaborative implementation mechanism at the national level. As the urgency of the crisis fades, the push for reforms also seems to be weakening, which makes it harder to achieve the political cohesion needed to establish a harmonized cross-border regulatory environment.
The Asian Development Bank (ADB), as the region's main development bank and multilateral body for policy counseling, plays an important role in providing an avenue for policy dialogues and cooperation in the region. Strategy 2020 underscores the importance of providing knowledge platforms to ADB's developing member countries (DMCs). In addition, ADB's recently approved financial sector operational plan prepared by the Office of Regional Economic Integration (OREI) aims to respond better to the region's need for financial sector development and ensure the quality and consistency of its operations. This research and development technical assistance (TA) will promote the region's financial sector development and policy cooperation in line with the financial sector operational plan, hence serving OREI's core mandate.